Taiwan Government OKs TFT LCD Investment in China

By David Hsieh – Vice President, Greater China Market

The Chinese New Year is a time when people in both China and Taiwan feel the need to buy something new. Right before the kickoff of the 10-day festival, the Taiwanese government announced a “gift” to Taiwanese TFT LCD makers.

On February 10, a Taiwanese Economic Administration official indicated that they will lift the ban on building TFT LCD and semiconductor fabs in China. This ban has been in effect for many years due to cross-strait political confrontation, but according to the government official “Many things have changed these years, especially the relationships between Taiwan and China, as well as the market potential in China.”

In December 2009, the Korean government made an announcement allowing Samsung and LG Display to build TFT LCD fabs in China, which is the fastest growing LCD TV market. Consequently, Taiwanese panel makers had been lobbying their government to open the door for them as well.

From now, Taiwanese panel makers AUO, CMO, CPT, InnoLux, HannStar, PrimeView, TPO, and Wintek can invest in Gen 6 and higher fabs in China as long as the following conditions are met:

• Taiwanese TFT makers can build Gen 6 and higher in China, but are limited to three fabs.
• N-1 rule: The fab generation has to be to one generation behind the highest generation in Taiwan. For example, AUO currently has a Gen 8 in Taiwan, so it can build a Gen 7 (1950 × 2250 mm) fab in China. CMO will ramp up its Gen 8 in April, after that, CMO or the new merged ChiMei InnoLux (CMI) can build a Gen 7 fab in China.
• Companies who want to invest Gen 6+ in China have to submit a plan for new investment or technology improvement in Taiwan.
• Taiwanese firms are not allowed to merge with or buy shares in Chinese companies, but they can enter into joint ventures with Chinese companies or venture capital firms.

We believe that AUO will be the first to build a Gen 7 in China, as it will promptly apply for this investment project. We believe that CMO will wait until the official merger forming ChiMei InnoLux (around April) to apply; their first priority is to ramp up their Gen 8 in Taiwan.

Interestingly, both the Korean and Taiwanese governments attached strings, but they are not quite the same. The Korean government did not regulate the generation as Taiwan did. The Taiwan government did not mandate usage of domestic equipment, but Korea has. What both governments have said is “You can invest in China, but please also make the next investment and technology improvement in the homeland.”

However, this announcement raises more questions:

Is Gen 7 what China really needs? Aren’t Chinese companies BOE and ChinaStar building Gen 8 fabs right now? 32″, 40″/42″, 46″/47″ are popular in the Chinese market, and these sizes are also economic for Gen 7, so in this case Gen 7 seems to be a safer and quicker ramp.

The Taiwanese government said three fabs are approved, but besides AUO and CMI (ChiMei InnoLux), panel makers in Taiwan do not seem to have plans to build Gen 6+ in China. So who is the third? Will AUO or CMI try to build two fabs?

How will Korean panel makers react? Are they really delayed because the Chinese government prefers Taiwanese investments due to the threat of Korean brands?

The story is just beginning!